USD/CAD has moved higher in Tuesday trading, following weak Canadian Manufacturing Sales. The key indicator fell well below the market estimate. The pair was also boosted by US Building Permits, which beat expectations. USD/CAD was trading at 1.0265.
The US dollar took advantage as Canadian manufacturing data disappointed while US Building Permits had a solid reading. Canadian Manufacturing Sales posted its second straight decline, although the March drop was modest, at just 0.2%. However, it fell well short of the market estimate, which stood at a gain of 0.7%. Canadian Wholesale Sales rose 0.3%, just below the estimate of 0.4%. In the US, Building Permits rose to 0.95 million, beating the estimate of 0.93 million. Housing Starts came in at 0.92 million, matching the forecast.
Taking a look at Japan, the powerful BOJ is replacing governors, and the move is sure to have significant ramifications for the Japanese economy and currency. Haruhiko Kuroda, the incoming governor, is a strong proponent of monetary easing, and has been called a “dream choice” for Prime Minister Shinzo Abe, who wants to see further monetary easing in order to eliminate deflation and increase government spending. Abe has been a sharp critic of Shirakawa, who did not favor aggressive monetary easing. Kuroda has set a goal of 2% inflation within two years, and is expected to introduce additional easing, which will likely weaken the yen. The Japanese currency has already lost 20% against the US dollar, which has been a boon for Japanese exports. Although economic indicators continue to point to deflation in the economy, GDP was up slightly in Q4 of 2012, raising hopes that the government’s aggressive easing policy is starting to pay dividends.
The island country of Cyprus is usually not the focus of the financial markets, but what was supposed to be a relatively small bailout for a struggling Eurozone member has sent the markets spinning. Over the weekend, a bailout agreement was reached over the weekend between the EU, IMF and the Cypriot government in the amount of 10 billion euros. However, a controversial provision in the agreement has threatened to derail the bailout. Under the terms of the bailout package, deposit holders in Cypriot banks would be levied with a one-time tax, between 6.7% and 9.9%, depending on the size of the deposit. This tax is intended to raise 5.8 billion euros, covering more than half of the 10 billion euro bailout. Taxing bank deposit holders is an unusual step, and the markets fear that it could result in depositors in other Eurozone countries with high debts transferring their funds to countries such as Germany. Cypriots were understandably fuming, as this marked the first time in the Eurozone debt crisis that bank depositors were being asked to take a haircut as part of a bailout. The Cypriot parliament was scheduled to meet in an emergency session on Tuesday to vote on the bank deposit levy and the bailout, but the drama continues, as the vote has been postponed.
In the US, the Federal Reserve meets for a policy meeting on Wednesday. The markets are watching to see if the Fed continues the current round of QE. With the US recovery looking stronger and unemployment nudging lower, there has been speculation that the Fed might wind down or modify its asset purchasing program. However, Fed head Bernard Bernanke and other senior officials have insisted that QE will continue. If the Fed surprises the markets, we can expect some volatility from USD/CAD.
USD/CAD for Tuesday, March 19, 2013
1.0257 H: 1.0269 L: 1.0215
USD/CAD has broken out and is showing some upward momentum. The pair is facing resistance at 1.0282. This is a weak line and could be tested if the US dollar continues to improve. The next line of resistance is at 1.0361, which has remained intact since June 2012. On the downside, 1.0229 is a weak support level. This is followed by strong support at 1.0157.
- Current range: 1.0229 to 1.0282
Further levels in both directions:
- Below: 1.0229, 1.0157, 1.01, 1.0041 and 1.00
- Above: 1.0282, 1.0361, 1.0446 and 1.0523
OANDA’s Open Position Ratios
In Tuesday trading, the USD/CAD ratio is pointing at movement towards short positions. We are not seeing this reflected in the current movement of the pair, as the US dollar is pushing higher against the loonie. Further movement in the ratio towards short positions would indicate an expectation for the Canadian dollar to recover and make up for recent losses.
The US dollar has been on the defensive all week, but posted gains against the loonie on Tuesday thanks to a combination of weak Canadian data and positive US numbers. We could see the pair continue to show strong movement, as the markets keep a close eye as the US Federal Reserve meets on Wednesday.
- 12:30 Canadian Manufacturing Sales. Estimate 0.7%. Actual -0.2%
- 12:30 Canadian Wholesale Sales. Estimate 0.3%. Actual 0.4%
- 12:30 US Building Permits. Estimate 0.93M. Actual 95M
- 12:30 US Housing Starts. Estimate 0.92M Actual 92M
*Key releases are highlighted in bold
*All release times are GMT
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